What does the SE100 Index tell us about social enterprise?

I did something new this week - I followed a conference on Twitter.  

Thanks to @SchSocEnt and @SEMagreporter I kept an eye on what was going on at Good Deals 2009 - the national social investment conference.  

I learnt, amongst other things, that plenty of people are keen to see some lighter touch social reporting, and that Liam Black had a dance on stage with Jeremy Nicholls.

I also learnt about some new research from SE100, which gave rise to headlines that social enterprises grow faster than the UK's other top companies.  

I had to look into that in more detail.  According to Social Enterprise Magazine's website, the top 40 social enterprises in the SE100 list enjoyed annual turnover growth of 78%.  This, in itself, seems impressive, but the icing on the cake is that it's almost double the turnover growth of UK-based companies listed in a similar index last month (that figure was 38.9%).

Whilst I'm not particularly good at maths, I am very interested in how statistics are used.  I had a bit of a closer look at the Index with which the SE100 index has compared itself.  

Business XL Magazine's Rising Stars list looks at the top 50 UK companies, in terms of turnover and profit growth.  These 50 businesses have a combined turnover of £1.3 billion, and combined profits of £147 million.  This averages out at around £20 million average turnover, and average profits of around £3 million.

Compare this with the SE100 list.  The top 100 (I can't find who they are) apparently have a combined turnover of £390 million - an average of just under £4 million.  In other words, on average, they're one fifth of the size of the average business in the other list.  We're not told how much profit they made.

My main point is that I don't think there is much value in comparing businesses which are very different in size.  What does it tell me if a group of 40 businesses which turn over an average of £4 million are growing at a faster rate than a group of 40 other businesses which average £20 million in turnover?  I'd say it tells me very little, regardless of whether they are social businesses.

I'm also a bit suspicious of the numbers chosen.  Why choose the top 40 for comparison - when one list looks at 100 businesses and the other at 50?  If they'd gone head to head, 50:50, you have to suspect that the figures wouldn't be such headline-grabbers.

Note:  Update 2 November:  Following the comment from Tim below, I think the suspicion in my previous paragraph is unfounded.  I hadn't realised that the Business XL list only gives financial information for 40 businesses - not all 50 in the list.  I've updated the blog as a result - see previous paragraph.  

I also question why we feel the need to prove that social enterprises are growing faster than for-profit businesses.  Who are we trying to impress?  Or is it just another example of the myth-making which is prevalent in some of the overheated parts of the social enterprise sector?  I'm currently running a sweepstake on when that stat is first used by a politician.  My bet is Tuesday morning.

And my final reason for looking into this more is that I don't hear enough voices at the heart of the social enterprise movement challenging stuff like this.  These stats were casually re-tweeted around the #socent community - in a similar way to how Umbrellagate seemed to be dismissed as an irrational attack on the sector by someone who just doesn't get it.   

I hope my commitment to writing about social business, week in, week out, demonstrates my enthusiasm for finding entrepreneurial ways to change society.  I congratulate any social business which is growing in terms of turnover, profit and impact. However, I question whether the selective (see note in italics above) use of statistics, which in my opinion prove very little, are helpful as we try to create bigger and better social businesses.  

By the way, I haven't been in touch with the SE100 people to discuss this - I'll send this post to them and will happily correct any factual errors - and obviously they can tell their story by leaving a comment below. 

Comments

[Tim West]

Hi Rob - and wider audience - I think you are absolutely right to investigate these figures further, and we would expect no less from intelligent social enterprise readers such as yourself. But I thought it might help to explain how and why we came to these figures, and have some quite strong feelings here, so forgive me but it's gloves off time...

First, let's get something clear: the SE100 index itself has not compared itself to the Business XL rising stars list. If you check out the press release that SE100 has sent out, it makes no comparisons but simply states its own findings and figures, for others to take or leave or compare as they see fit.

However, it is true that the reporting team at Social Enterprise magazine has chosen to make the comparison with the other list. Of course, Social Enterprise mag runs the SE100. While index itself is careful to stay basic and factual in its self-reporting, I think it's fair enough for the magazine to report something in a particular way, with a particular editorial slant. I also think there's a difference between the two. But if you don't, fair enough - and fair game I suppose.

In any case, our reporting team, rather than our SE100 communications/PR team, felt it was appropriate, as part of their journalistic remit, to try to put the figures produced by SE100 into some kind of context - and it was particularly interesting to compare them to the 'mainstream' business sector.

In terms of going 'head to head', as you put it, although the Business XL rising stars list is a top 50, and SE100 is a top 100, the only figures available on the Business XL website (as you will see from the link you give to the site, if you explore) are their top 40. For this reason, we thought it was only right to compare their top 40 with the top 40 of the SE100 index. If they had provided the top 50 then we would have compared our top 50. In our news story, we make clear that our top 100 figure is 35%, so we are not trying to hide the fact that the % growth figure drops as you include more businesses in your sums.

If we had wanted to skew the figures to the advantage of SE100 (which I kind think was the inference from your comments), we could have taken, for example, just the top 20 of each – where the Rising Stars list top 20 growth is 37% and the SE100 top 20 growth is more than 100%.

The next point relates to the size of the companies we are talking about. Of course the Business XL companies are much bigger, and so one must be aware of this when making comparisons. However, I can't agree that there is not much value in making this comparison. I'd say it tells us something quite important: whether or not there are many very large social enterprises about, the leading social enterprises are growing well in comparison to some of the leading mainstream businesses.

And then there's your question about who we are trying to impress. The point here is that we really can't keep social enterprise all to ourselves. It can't survive by being small minded and introspective.

So the answer is that we are trying to impress a whole bunch of people - from potential investors, to business partners and policy makers. The fact is that when most people hear the words 'social enterprise', they still don't know what it means and they probably will associate it with charity and grants rather than business and growth. So yes, we need to impress, and if we don't try then we may as well all pack up and go home.

Frankly, I think that you've tripped over the same pothole that you accuse us of falling in - namely, making assumptions which aren't based on the right facts - and then making comments on them. But I guess bloggers never need to worry about sub-editors...

Finally, I just wanted to say in public that I've known you for many years and respect both your commitment and your comment. I think it's important that everything is open to scrutiny - including us - so I am glad to engage in a healthy exchanging of blogging blow over issues we all feel strongly about!

Cheers,

Tim

[Rob Greenland]

Thanks for your comments Tim.

First of all, I made it clear that I'd happily correct any factual mistakes - and I now understand that the Business XL list only gives financial figures for the the top 40, even thought it lists 50 businesses. In my haste to respond I assumed that a top 50 list would have full information on the top 50 - I only read the top 20. I will make this correction in the original piece. It may also be useful if you could share the statistics from SE100 on the top 100 social enterprises.

SE100 don't send me press releases, and they don't appear to be on the website, so I can only base my comments on the reporting on the Social Enterprise website. I was therefore not in a position to understand whether the comparison was being made by SE100 or by Social Enterprise Magazine journalists. I now understand that the comparison was made by your journalists.

I stand by my question as to the value of the comparison. I accept to a certain extent the value of comparing "leading" businesses in different sectors, but I still believe that a percentage comparison, when average turnover in the two groups is so markedly different, is not of great value to people who want to really understand the performance of the social enterprise sector. In a slightly boring way, I think it comes down to maths - is a percentage of a smaller figure comparable with a percentage of a bigger figure?

I of course accept the need to impress people beyond the social enterprise sector. The point I am making - and make on a regular basis - is that some of the spin of social enterprise is more fantastic than realistic. Yes we need to impress people, but I think we also need to be careful to not over-sell. In my opinion, in this case, the comparison lends an overly-positive spin to the statistics.

I recognise your commitment to the sector, but question whether as a magazine your editorial line could be more critical at times. I am not questioning your integrity - rather I'm reflecting on the difficulty of publishing a sector magazine. Maybe I can afford to be more critical of key people and policies in the sector than you can, given that I don't make my living out of writing about the sector - or directly from the people who I tend to challenge.

As you say, we have known each other for some time. I'm keen to maintain the friendship and continue the discussion. More importantly hopefully we'll stimulate others into getting involved in the debate.

Thanks

Rob

[Ben Matthews]

Hi Rob / Tim,

I've been following along with your conversation with interest. This might be too early to step in but thought I'd comment in case either of you could give your opinion.

Another element that makes it difficult to compare the SE100 to the Business XL list is Social Return on Investment (SROI). This measurement has been a distinguishing factor of social enterpise that sets it apart from normal businesses and so should be included in any 'Top 100' list or otherwise.

This is especially true as the use of SROI supports the assessment of value for money. As the 'Social Return on Investment and Commissioning'* supplement, produced by the Office of the Third Sector, outlines:

"HM Treasury guidance states that: Value for money is defined as the optimum combination of whole-of-life costs and quality (or fitness for purpose) of the good or service to meet the user’s requirement. Value for money is not the choice of goods and services based on the lowest cost bid. In principle, any appraisal should take account of all benefits to the UK. Wider social and environmental costs and benefits for which there is no market price also need to be brought into any assessment. They will often be more difficult to assess but are often important and should not be ignored simply because they cannot easily be costed."

So should we be adding in the SROI to the SE100, especially if these rankings should 'take account of all benefits to the UK'? This would obviously make it much more difficult to put together a top 100 list, but would hopefully encourage more of a structure in this area where many organisations struggle to prove their SROI and value for money.

I appreciate that your opinions will be more seasoned than mine, so I'd love to hear them.

Best,
Ben

* Available to download here: http://www.sroi-uk.org/component/option,com_frontpage/Itemid,1/

[MIke Chitty]

Fascinating stuff. But really what is it with the Top 100 lists? However we compile them such lists are flawed and usually, with hindsight, make us all look a little silly as 'regression to the mean' means that those that are growing rapidly now will not sustain their rapid growth and soon disappear into the pack.

The SE 100 list is also a bit of a misnomer as nowhere can I find a list of the top 100. Instead, each month, the top 5 performers from each sector are highlighted...this month it appears to be 'finance' http://www.se100.co.uk/rbs-the-index.php

And in both lists there are clearly businesses that are doing great work with significant SROI that may or may not be reported. The only financial data collected by SE100 is around turnover and its breakdown (trading income, grants, loans etc). Data on level of profits generated and re-invested would be interesting. On the non SE list we have a couple of healthcare companies and a green power company in the top 10. I wonder if they report on their SROI or is doing 'good work' at a profit enough for them?

And as for suggestions that we try to take account of 'all benefits to the UK' of trading...All I would say is that I suspect the total tax take from the for profits would be overwhelming...and I suspect provides a source for many of the'loans and grants' listed by the SE100!

There is a the old bankers saw that "Turnover is vanity, profit is sanity but cash is reality". How would this translate in the world of SE? "Turnover is vanity, profit is sanity, cash is reality, but SROI is our raison d'etre?". Strikes me that the SE100 (or the SE top 5 in our chosen sector this month) is perhaps the ultimate vanity list?

So what are we really trying to achieve with such lists?

If it is about impressing a wide range of stakeholders I definitely do not think you do it by quoting % growth turnover figures. Although I am not a business analyst, anyone who quotes percentage turnover growth would worry me. Tell us about your trading surpluses and what you have you been able to do with them! And if you are subsisting on a diet of grants and loans show me how you are able to convert them into social returns effectively and efficiently. Show me how you have protected your beneficiaries from the risks of grants and loans drying up.

I have argued for a long time that there are just good businesses and bad businesses and sometimes it is very hard to tell the difference. Some SEs have become miserable grant writing organisations struggling to make any lasting social impact. Some 'for profits' wreak social havoc selling carcinogens and cane sugar. Some for profits are doing their bit to build a better world as are some social enterprises.

It is the artificial distinction between the two, and the ensuing distortions in the marketplace, that I find difficult.

[MIke Chitty]

...and of course your point about percentages is correct. Taking turnover from £10 000 to £20 000 may be a great percentage increase - but shifting it from £1m to £1.1m would please me more - assuming I am turning over at a profit.....

[Rob Greenland]

Ben, Mike, thanks for your comments. I'll be interested to hear Tim's thoughts but I'll give you mine for now.

One of the things that made me less than enthusiastic about the SE100 list is the way that information has been given (mainly in SE magazine) in a fairly piecemeal fashion. As you say, top 5's every month. I agree Mike that focusing on turnover percentage growth should be of less importance than a focus on profit or impact. I haven't followed the SE100 in the magazine in any great detail - but have had a quick look at some of my back copies just now. The extreme example is one business with a turnover of £1000. I assume that was in the top 5 because of a big percentage increase - who knows - maybe from £250 the year before. I can't say that impresses me particularly.

Another - Mow and Grow - has 275% growth - and a fairly modest turnover of £150k. Again, I'm delighted for them, but I would be more impressed by a 4% turnover growth in a £15 million business. Yet that, if we compare in the way that SE Magazine have compared, isn't as impressive.

SE100 does consider social impact - as far as I can tell it ranks businesses out of 5 based on their commitment to reporting social impact. There are details on the website: http://www.se100.co.uk/rbs-social-impact.php

As you say Mike, it will be easier to make a judgment when we see the top 100.

I've asked a statistician for a definitive answer to the turnover percentage conundrum...

Thanks

Rob

[David Floyd]

I'm pleased that a few other people have queries over SE100.

Several times, I've looked at the top five lists and thought, amongst other things:
(a) why is it called SE100 when it involves lists of five?
and
(b) is it really positive for social enterprise to promote the idea that you can become some kind of sector leader when you've got the turnover of a moderately successful greasy spoon caff?

Generally, though, this stuff always seems to me like the social enterprise sector shouting "look at us, we're real businesses really" but backing it up with information that suggests the opposite. I expect my mum and my girlfriend to be impressed that my business has gone from turning over £90,000 to £150,000 but I can't see why it's really of any interest to anyone else.

"These stats were casually re-tweeted around the #socent community - in a similar way to how Umbrellagate seemed to be dismissed as an irrational attack on the sector by someone who just doesn't get it."

Yes, the interesting but worrying thing about Umbrellagate was that Alison Ogden-Newton's rebuttal - while containing lots of positve points - didn't actually rebut any of the original arguments that had been made.

[Rob Greenland]

Thanks for the comment David. I think your point about the information that is used to back up the argument that we're "proper businesses" is an important one. Why isn't there profit information in this list? They may well have not got round to gathering that info yet, but I also imagine that it wouldn't look quite so impressive.

As you said in your excellent piece about the SEL/NAVCA saga, the idea that social enterprise is a veneer for profiteers is fantasy - precisely because there aren't that many out there making profits which are worth writing home about. Many are impressive, many are increasing turnover, but in my experience many don't give you totally straight answers when you ask a straight question about whether they are profitable. Not being that profitable is understandable - but let's be open and honest about how hard it is in many cases to make a profit/be sustainable whilst delivering lasting social change.

Here's a link to your piece - which said it all so well I didn't bother writing about it myself:

http://bit.ly/1SFXjs

Thanks
Rob

[David Floyd]

I'm beginning to think it might be good to have an alternative conference called 'The Emperor's New Social Enterprise'. Or some wittier but communicating a similar idea.

You're completely right about profit. I'm certainly not sneering at social enterprises that aren't making profits. I'm running one of them.

For many of us, achieving positive social outcomes while keeping our head above water is enough of a challenge to be getting on with in the short term.

As you say, we should be honest about how hard it is because - and this is why the 'social enterprises are growing so fast' spin really riles me - assuming all other factors are roughly equal, it's usually harder to sustain a social enterprise than to sustain a 'normal business' because running a sustainable business and delivering social change are both difficult things to do and social enterprises/social entrepreneurs are trying to do both of them.

[Tim West]

Hello everybody - sorry not to have been involved in the debate last week - too many tight deadlines to deal with!

You all make some really important points and I would like to be able to discuss them all with you:

1. What is it with top 100 lists?
Essentially, top 100 lists are like Marmite. You love them or hate them. But even if you hate them, you know they exist. So the point of a top 100 list is that it's a great way to get coverage/recognition. People understand it because it is simple (unlike social enterprise itself).

2. Why top 5 each month?
This is because we wanted to maintain interest on a month to month basis and we wanted to be able to focus on key 'markets' or 'sectors' each month. It also allows us to be systematic about collecting information and marketing the index to different groups. The top 100 will be published annually.

3. Adding SROI.
You are absolutely right to highlight social and environmental value/returns. Right now, as you know, there are a number of ways to put a value on these crucial elements of social business. SROI is attempting to offer itself as a standard form. Social auditing, LM3 etc are also very useful. You will be aware that - unlike many such indexes/initiatives - we have, alongside the growth/turnover data, placed a commitment to measuring and communicating social and environmental impact right at the top of the SE100 index. There is a prize of equal amount for the impact measurement champion of the index. We are lucky enough to have been able to involved Jeremy Nicholls, CEO of the SROI Network, as an advisor from the very beginnings of planning the index, and Jeremy also reviews all the top five that we feature each month in the magazine, and personally contacts one of these five to talk to them and write a column about how they measure and communicate their social/environmental returns.

4. Why growth etc but not profit?
I agree that collecting information on profits would tell us a lot. However, in practice, it's just a step too far at the moment for organisations who are already a little nervous about divulging information about their performance.

5. Why only figures on growth?
Although growth is the 'headline' figure, when we publish the top 100 list, we will be providing a wider statistical breakdown and analysis of all the figures we have collected. This means looking at the biggest social enterprises and the smallest, ranking sets of data to show highest to lowest turnover, as well as growth, regional comparisons, sector comparisons etc. I do also agree that it's important to make clear that many social enterprises are small, make smaller profit margins, etc. We do need to be honest about the social enterprise business model. But we also need to be clear that this is a business model rather than a classic charity model and that it is capable of being successful in meeting business targets whilst delivering social/environmental returns.

6. Who wants to know?
Actually, not just your mum and your girlfriend. Lots of people - from bankers to philanthropists to politicians to foundations to public sector procurers - are really passionate about delivering social and environmental goals but don't quite understand that social business can help them do this. The SE100 is one way of explaining this to them.

6. What do the figures tell us?
As journalists involved in this sector for a long time, we were as frustrated as everybody else about the lack of facts and figures for the social business sector. So we decided to collect figures ourselves. Although we have some sponsorship, and major support from RBS, we are putting a large amount of human and financial resources into this index ourselves because we believe the data can be of great use and benefit in the promotion and development of the sector. It will tell us a range of things about the success and size of social businesses as a group, as well as various market segments/regions etc.

7. Your involvement.
We want this to be of real value - it's important to us that people realise this, and also that there is constructive scrutiny in order that we can make it better and more useful. To this end we would be very interested in getting together an advisory panel on the SE100 - Rob, would you be interested in joining?

I'm not sure I've answered all of your points but I hope I have addressed a number of concerns and clarified things somewhat.

I look forward to further feedback and debate.

Many thanks,

Tim
--
Tim West
Director
Society Media

[Jeff Mowatt]

First they need to make clear what they mean by social business. They seem to be using the term as weak branding for organisations which are funded by donations and grants.

Social enterprise, as is my understanding includes both not-for-profit and profit-for-purpose endeavour. That's what the DTI confirmed anyway in their understanding, when I related a model in which at least 50% of surplus goes to social objectives. By the same token, CICs are considered social purpose.

Social business, social capitalism are to many, the profit-for-purpose subset of social enterprise. This is the 'more than full cost recovery' scenario which Muhammad Yunus portrays when he says 'social business entrepreneurs are the solution'

When soliciting contribution which is then disregarded it goes beyond mere misinterpretation. If they don't yet understand, they might engage and learn, instead of simply deleting. It should go without saying that ethical business cannot be founded on intellectual dishonesty.

[Trevor Lynn CEO Mow & Grow]

Hello everyone, I'm tentatively dipping my toe into the hot bath of this blog, a little late but certainly with a new angle. As the CEO of Mow & Grow which is in the above mentioned RBS SE100, we are indeed a leader in several areas. We're very proud of this. Vanity....maybe but out here on the edge of the east coast we dont have any peers. We've now expanded and have 18 satellites across the UK.
For us the RBS SE100 is a pat on the back, its also a little motivation for us to target growth and compaire it to our contemparies. Anything which motivates our staff and volunteers is a good thing, and I can assure you we have dozens of staff who anxiously wait to see the result with every issue of SE mag being delivered.
Personally i believe a business should focus on its customers rather than its competitors. But we cant help notice the staff get a buzz from seeing there project (and it is there project, Mow & Grow is only ever as good as its staff and volunteers).
This motivation though has seen us today post continued growth of 850%....now I read your not impressed by % growth. You state above a 4% increase on a firm that did a million pounds is more imressive.... Well we beg to differ....we have grown from £20K, to £40K to £152K last year and as of today we just posted £1.38 million, and are predicting turnover in excess of £10 million this coming year. As you can imagine were pretty pleased with ourselves and were be dishing up humble pie at Voice 10 for any takers.
We're excited about the RBS se100 because its raised our profile. Its not just us popping our head above the parapet, its seen a glut of organisations aproach us interested in franchising our brands as our organisation expands (we try to avoid the word Grow).

My question is something that no one has touched on in these blogs....Why did RBS get involved? Is it because they need to absolve themselves of there finacial sins, are they pushing some much needed PR, or is there a genuine desire to support rapid growth. Indeed my naive impression they'd like to use the Se100 to be a guide to hot investment proposals.
We all wait for March when the Se100 winners are announced and if someone does beat Mow & Grow to to title then they bloody well deserve it, cause we worked our t**s off to hit this growth. I'll take my hat off to anyone doing that well. But if we do win in I hope RBS invite us to speak.....why? because when we sought an investment from RBS this year we were told they wouldnt invest in us because.......we were growing too fast! Fortunately for us we won a huge DWP bid and secured a BII loan, so we didnt need any finance. But RBS.....you missed the boat.